Aging Strategy in Healthcare Stocks

By Michael Hodin

Acquisitions in the healthcare and pharmaceuticals sectors are all the rage these days. Among the crop of deals, one of the most interesting and revealing is Abbvie’s recent $21 billion purchase of Pharmacyclics. This deal, paired with the recent billion dollar partnership with Google-backed Calico, illustrates that what’s going on in health and pharma isn’t just about “replenishing the R&D pipeline,” as many are suggesting — but also building strategies to grow and thrive as the global population ages.

Of course, Abbvie’s deal and others are made with an eye on urgent top-line growth goals, but we are also seeing that business leaders are making these decisions with a deeper appreciation of market trends, including valuation based on a corporate path to ensure it is positioned to leverage the aging of the global population. With the over-60 population soon to reach one billion, this is a sound business strategy.

Indeed, business leaders pharmaceuticals and healthcare know that individuals, private health insurers, and government decision-makers are going to be increasingly committed to — and forced to — spend on healthy and active aging.

This megatrend towards healthy and active aging stretches far beyond healthcare and pharmaceuticals. With more people over 60 than ever before, and with a social and fiscal need to keep them healthy and productive, a number of forward-looking businesses are getting in on the game.

Consider Intel’s interest in telemedicine, an innovation that will not only make the delivery of care more efficient, but also provide more care to those who are limited in mobility. Or consider Fujistu’s Raku Raku smart phone, which is designed precisely for older users. The Raku Raku is doing quite well in Japan, the world’s “oldest” country where soon one-third of the entire population will be over 60.

Even Uber’s business is being shaped by older adults. A growing percentage of its drivers are of the age that we once considered “retired.” But this app-enabled work environment aligns perfectly with the so-called retirees who want — and need — a different kind of work later in life, one with more flexibility, fewer hours, and no bosses.

Yet as aging shapes global business in all sectors, healthcare and pharmaceuticals are going to remain at the core of the transformation. A closer look at the Abbvie-Pharmacyclics deal shows why.

When most of us think of leukemia — the current indication of Pharmacyclics’s Inbruvica — as a cancer that affects children. Yet, the data show that adults are ten-times more likely to be diagnosed than children.

In addition, the incidences of skin cancer is projected to grow substantially as the population ages. It is not surprising, then, that Nestle recently bought full ownership of Galderma, a global dermatology company and is now being built into the newly-created Nestle Skin Health. Nestle must surely have understood that the explosion in non-melanoma skin cancer is correlated with population aging. An incredible 82 percent of this type of cancer occurs in those of us over 60.

It certainly seems that Nestle, like Abbvie, Calico, and so many others, are beginning to get what the S&P Global Aging Report shouted five years ago: “No other force is likely to shape the future of national, economic health, public finances and policy making as the irreversible rate at which the world’s population is aging”.

Or, to put it another way, if you want to return value to your shareholders, you will invest time and money in products and services for an aging world.

As complicated as the financial decision-making must be for the finance arms at these major organizations, there is some pretty arithmetic that shows just where this world is headed:

• By 2017, the 60-and-over cohort will control 70 percent of disposable income.
• Soon, Japan will sell more adult diapers than baby diapers.
• By 2030, the 18-to-49 segment is expected to grow 12 percent, while the 50+ segment will expand 34 percent.

So despite the arcane calculations that made the Abbvie deal make sense, a broader view shows it is more genius than most commentators have suggested. It is certainly a good move to position any business — much less that particular business — in a space where the market itself is growing. As the fashion industry and Hollywood are showing, this demographic is a great place to invest.

Originally published at www.huffingtonpost.com on June 8, 2015.